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| EDITOR'S NOTE: closely related to the problems Tom describes is this our current UI rate system taxes good employers to benefit bad employers. Click here for Ted Nesi's article. In his chart, above, every bracket of RI employer pays more in unemployment insurance costs than benefits paid out EXCEPT the last bracket which includes those employers who lay off the greatest number of workers. They pay $13 million less in UI costs than their workers collected, a cost that is borne by everyone else. |
It is outrageous
to have millionaires collecting unemployment insurance payments, according to a Golocal article
in which I am quoted. Maybe Golocal is on to something?
Certainly their
employer paid a premium to be insured against a layoff, but it’s also unlikely
that they are actually in as dire a need for the assistance as someone who has
been laid off from a lower-paid job.
But the real problem with UI is the I.
That is, unemployment is structured as an insurance program: your employer pays
a premium and when unemployment happens, you can make a claim. Why is that a
problem?
In structure,
it’s just like property and casualty insurance. You pay a premium, and if your
house burns down, you can make a claim to the insurance company. The difference
is that only criminals incorporate burning down houses into their business
strategy, while layoffs have become an accepted part of corporate management in
the United States.
The
problem is that when layoffs become common — when the health of the communities
and workers who made a company successful ceased to be a part of managements’
concerns — the insurance structure of the unemployment program becomes less
sustainable. (In fact, layoffs that are common now were actually illegal within
my memory, but that’s a different, though equally maddening, part of the story.)
Worse than unsustainable, it can
become farcical when a company helping to cause the problem has the temerity to
complain about it.
This came to my
attention years ago, when Cranston Print Works complained to the General
Assembly that it paid $500 per employee for UI in Rhode Island, but only $20
per employee in North Carolina. Quoting from a letter I wrote in 1996:
Dell [at the NC Labor Dept] speculated that the Cranston Print Works unemployment tax rate differential cited… was due not only to the difference in tax rates, but also to the fact that, over the past decade or so, as production has moved from here to there, Cranston has been laying people off here in RI and hiring them in NC. Since a company’s unemployment tax rate is largely dependent on how many people they’ve laid off, this would obviously make their rate much lower in NC than here. The whole thing becomes something of a self-fulfilling prophecy for businesses: they move to NC to lower costs, but by moving (hiring in NC, laying off in RI), they make the costs higher for their remaining divisions, and for those companies who stay. [emphasis added]
What has
happened around here over the last few decades is that the companies who fled
early have actually increased the costs borne by the companies who have not.
This is true not only in unemployment insurance, but in a host of other ways.
Fewer companies sharing the costs of infrastructure investment means higher
electricity distribution costs for each individual company, parts distributors
have fewer customers so the margins they charge have to go up, and the costs of
other government expenses, like roads, water, and education, find fewer
companies to share the costs, too.
Costs go up for the companies who remain,
who then complain that high costs force them to move, too. It’s not always as
ironic as when the same company is doing both the moving and the complaining,
but it’s the same dynamic.
What have we
done to address this problem? Pretty much nothing, except where we’ve made it
worse, by reallocating some of those burdens in disregard of a company’s
ability to pay. Not only do we have a failure of policy to contend with, but we
have a failure of policy development. You hear routine complaints about
business costs in Rhode Island, but when has the analysis ever led to anything
more substantive than just more tax cuts?
The Assembly leaders who make economic
development policy in our state seem to have only that single play in their
playbook and they keep running it, hoping against hope for a different outcome
each time. What I hear from the statehouse is that there is plenty of talk
about further tax cuts this year, despite the anticipated budget shortfalls.
Rereading that old letter seems
a little bit sad with 18 more years of perspective:
There are dozens of creative and exciting economic development ideas that are proven to work by virtue of the fact they exist in other states, and are working there…The only special thing about the conditions here in Rhode Island is the lack of leadership and vision and commitment–from the Assembly, from the EDC, from the Governor–that are necessary to make them work. This means money, but not necessarily extravagance. Yes, the budget is tight, but as long as we simply complain that the pie is shrinking and there’s nothing we can do about these great ideas, there will continue to be less and less money with which to do anything. This is the great death spiral we’re in, and the tragedy is that no one seems to feel it important to resist.